Will Trump Really Start a Broad Trade War?

What is different about the tariffs that President Trump heralded this week is their breadth, and the aggressive manner in which he is promoting them.

Photograph by T.J. Kirkpatrick / Bloomberg via Getty

When Donald Trump’s trade advisers complain about China dumping certain
products, such as steel and aluminum, in other countries at below-market
prices, they have a point. In the past fifteen years, Chinese production
of steel and aluminum has skyrocketed, creating excess capacity in world
markets, and Chinese firms have been widely accused of pricing below
cost to clear their inventory. U.S. producers have struggled to compete
with cheap
imports.
Many plants have closed down, and thousands of workers have lost their
jobs.

The Trump Administration isn’t the only Western government to be
concerned about the issue. Last year, the European Union slapped tariffs
of up to 28.5 per cent on certain types of steel pipes and tubes made in
China after finding that they were being exported at artificially low
prices. “This is just one example of the Commission using the EU trade
policy toolbox to tackle problems related to the dumping of steel,” the
European Commission explained in a public
statement.
“The EU currently has an unprecedented number of trade defence measures
in place targeting unfair imports of steel products, with a total of 43
anti-dumping and anti-subsidy measures, 20 of which are on products
originating from China.”

Previous U.S. governments have also taken actions to counteract alleged
Chinese dumping. In March, 2016, the Obama Administration imposed
tariffs of more than two hundred per cent on imports of cold-rolled steel from
seven countries, including China. Two months later, the Commerce
Department raised the
duties on Chinese corrosion-resistant steel to four hundred and fifty per cent.

What is different about the
tariffs that Trump heralded at a White House meeting on Thursday is their
breadth, and the aggressive manner in which the President is promoting
them. Rather than targeting particular products, the tariffs would apply
to all of them: twenty-five per cent on steel, ten per cent on aluminum.
And instead of going after particular offenders, such as China, Trump
seems to be threatening action against any nation that runs trade
surpluses with the United States. “When a country (USA) is losing many
billions of dollars on trade with virtually every country it does
business with, trade wars are good, and easy to win,” he
tweeted on Friday morning. “Example, when we are down $100 billion with a
certain country and they get cute, don’t trade anymore—we win big. It’s
easy!”

Trump’s off-the-cuff announcement sent the stock market down more than
four hundred points on Thursday, and the Dow fell again on Friday.
Foreign governments, some of which may well have been more sympathetic
if the anti-dumping measures had been targeted more narrowly, also
reacted with alarm. The E.U. announced that it would consider
retaliatory measures. “The root cause of problems in these two sectors
is global overcapacity caused by non-market based production,” Cecilia
Malmström, the E.U.’s commissioner for trade,
said. “This
can only be addressed at the source and by working with the key
countries involved. This go-it-alone action by the US will not help.”

Trump’s shotgun approach ignores these subtleties. It also glosses over
the fact that China isn’t the biggest exporter of steel products to the
United States. According to the research firm Wood Mackenzie, it is only
tenth on the list, supplying just 2.4 per cent of U.S. steel imports.
The biggest
suppliers are Canada (16.7 per cent), Brazil (13.2 per cent), and South Korea (9.7
per cent), so two of our closest allies would be among the biggest
losers.

The case of Canada illustrates the absurdities of Trump’s proposal. Over
the past fourteen months, there have been trade tensions in many areas
between Washington and Ottawa, but the dumping of Canadian steel
products hasn’t been one of the issues. Rather, Canadian steel
producers, like their U.S. counterparts, have been complaining about
Chinese firms dumping products in the domestic market. Sensitive to
these complaints, the Canadian government has long imposed protective
duties on some Chinese exports, such as hot-rolled steel plate. On Thursday,
the Canadian International Trade Tribunal indicated that these duties
would remain in
place.
On this issue, at least, the United States and Canada should have been
able to find common ground. Instead, Canada, like the E.U., is
threatening to retaliate against Trump’s
plan.

The key question now is whether Trump meant what he said, or knew what
it implied. Evidently, there is a battle royale going on inside the
Administration. On one side are the protectionists, led by Wilbur Ross,
the Commerce Secretary, and Peter Navarro, an economic adviser to Trump.
On the other side are the free traders, led by Gary Cohn, the head of
the National Economic Council, and Steven Mnuchin, the Treasury
Secretary.

According to a
report in the Washington Post, Cohn and Mnuchin, as recently as Thursday
morning, thought that a decision on imposing broad tariffs had been
postponed. But Trump, with his eye on a forthcoming special election in
western Pennsylvania, part of his geographic base, pulled a fast one and
made the announcement. NBC News
reported on Friday that his decision “was born out of anger at other simmering
issues,” including his anger at Jeff Sessions and the decision by John
Kelly, the White House chief of staff, to strip Trump’s son-in-law,
Jared
Kushner,
of his interim security clearance. Trump became “unglued,” according to
one official.

Whether that’s true or not, the trade hawks were delighted. On Friday
morning, Ross
told CNBC that broad tariffs were necessary because “conventional trade
methods don’t solve the problem of systemic global overcapacity and
global dumping.” Despite Trump’s public statement, however, the precise
details of the new policy haven’t been announced. Will Captain Chaos
reverse himself, as he did on immigration and also appears to have done
on gun control? Tune in next week to find out.